Creating Lobbying Strategy For Stelco

BACKGROUND

The lack of constant monitoring and effective investigating of the dumping and subsidizing of imported steel products into Canada and the lack of immediate remedies and trade reactions to address such a problem exaggerate the possibility of a failed court-supervised restructuring process for Stelco. If Stelco fails the restructuring process, it will lead the company to liquidation, which will harm the employees and the communities that depend on the company and make all stakeholders lose their livelihood.

Stelco Inc., located in Hamilton, Ontario, is a large and diversified steel producer with an annual steelmaking capacity of 5.9 million tons. Stelco is involved in major segments of the steel industry through its integrated steel business, mini-mills, and manufactured products businesses. The integrated steel segment provides steel for automotive, transportation, construction, and pipe and tubular manufacturers, etc. As of March 2005, the company had a workforce of 9, 143.

Besides the factors of increased cost of raw materials and energy, and a significant strengthening in the Canadian dollar, Stelco continues to face a high level of low-priced imported steel products in the Canadian marketplace. The foreign steel producers dump their products on the Canadian market at prices below what they sell in their home countries or lower than their production cost. In addition, those foreign steel producers take advantage of obtaining subsidies from their local governments to lower their selling price overseas. Thus, Stelco faces a serious viability issue that contributes to the unfair competition. Suffering a similar fate as several other steel producers, Stelco has entered into bankruptcy protection. The court-supervised restructuring process was initiated on January 29, 2004 with an application under the Companies' Creditors Arrangement Act (CCAA). The restructuring process provides a one-time opportunity to make the company viable. A failed restructuring process will drive the company out of the business.

Stelco has tries to find prospective buyers for a number of non-core subsidiaries and strives to raise capital for its core business. The company turned a consecutive net loss to a profit for the 2nd and 3rd quarter of 2004 after Stelco entered bankruptcy protection last year. The company saw a promising future to bring its businesses back; however, low priced steel imports are still being brought into Canada. Generally, steel consumers are opportunistic in nature, and they favor low priced steel products to make more profits regardless of the fact that the steel products are sold below cost. In October 2004, StelcoÐŽ¦s biggest customer, General Motors, decided to obtain a source supply from a new supplier other than Stelco to meet its 2005 requirement. DaimlerChrysler gave the same notice shortly after. If Stelco loses these two biggest customers, it will have extremely grave consequences for the future of the company and will soon cause the companyÐŽ¦s bankruptcy.

The issues of dumping and subsidizing of imported steel products into Canada makes Stelco unable to compete against foreign steel producers, which results in a loss of customers and market shares for the company. Stelco is having difficulties to generate revenues and profits, and it is facing serious financial problems. It might not be able to succeed in its restructuring process to bring back its businesses. Stelco will exert its great efforts in pursuit of a fair competition with the help of its government.

ANALYSIS

The Anti-dumping has become a significant issue for the company because it will determine if Stelco can survive in the steel market. The key point of its survival is if the company can restructure successfully and generate enough revenue. The company has experienced two big problems: the two biggest customers, General Motors and DaimlerChrysler, both left Stelco and turned to other supply sources and the company had a big loss of $563 million in 2003 and a continuing loss of $36 million in the first quarter of 2004 resulting from the low-price steel imports. Stelco tried to improve its performance by adopting a set of restructuring strategies, such as reducing costs, laying off employees and cutting back production to control inventory. By these efforts, the companyÐŽ¦s situation has been improved slightly during the first quarter of 2004- it made a profit during this period of time. This optimal trend, however, is vulnerable, and it needs to be strengthened by providing Stelco a fair competition environment. Nevertheless, if the dumping action from other countries cannot be prohibited, these counties will continue their aggressive competition with Stelco. The customers will be pulled away from Stelco and turn to these low-price raw materials; the sales of Stelco will reduce and the company will not generate enough profits. As a result, the company will not maintain its daily operations and will not carry on its restructuring either. These consequences will directly threaten the companyÐŽ¦s existence in the steel industry and might bring on bankruptcy eventually. Therefore, anti-dumping is now an urgent matter for the company.

As we discussed above, the situation the company faces is very difficult. Its main customers, General Motors and DaimlerChrysler, have been pulled away from Stelco and the market for the company has shrunk. Furthermore, the companyÐŽ¦s appeal to the Canadian International Trade Tribunal about the injury from dumping did not attract attention from the government. The Canadian International Trade Tribunal made a judgment that importing those low-price steel materials does no harm to Canadian industry. If this situation cannot be over turned, the companyÐŽ¦s restructuring will fail and the company will get big trouble. Finally, the company might face bankruptcy and will shut down.

This issue has great strategic importance to the company. First, if dumping can be prohibited, Stelco will survive in the steel market in the short run. The company will get back its lost customers and could carry on its operations. Second, anti-dumping would give the company a fair competition environment; therefore, the company will be restructured successfully and will be profitable in the long run. In addition, the success for anti-dumping will enhance the competitive capability for the company. If the dumping problem could be solved, the company would recover its power in the domestic and world steel market, thus Stelco could compete with other competitors in the steel market.

Relevant stakeholders include the following:

„X The Employees of Stelco have a high interest in the issue. The dumping and subsidizing of imported steel products into